January 22, 2017

The price paid for solar power in India at auction is set to
fall below last year’s record lows for the South Asia nation, driven by
plummeting panel prices, falling interest rates and competition among
developers seeking a slice of the country’s renewables market.

Prices could dip lower than the 4.34 rupees (6 cents) a
kilowatt-hour offered in auctions held in the state of Rajasthan a year ago,
according to at least one developer of solar projects in India.

“This year we will see prices fall below 4 rupees a
kilowatt-hour for sure and it will be viable,” said Rahul Munjal, chairman and
managing director of Hero Future Energies Pvt, the clean-energy arm of Hero
Group, one of India’s largest automakers.

In 2016, countries from Chile to the United Arab Emirates broke
records with deals to generate electricity from sunshine for less than
3 cents a kilowatt-hour, half the average global cost of coal power. With China
and Japan joining the competitive-bidding bandwagon, as much as 25 gigawatts of
solar capacity could be awarded through auctions this year globally, according
to Bloomberg New Energy Finance.

“We feel interest rates will go down and the cost of solar
panels will fall, so these will have a great effect on breaching the 4 rupees a
unit-mark," said Hero Future’s Munjal, adding that he’s looking at a 50
basis-point decline in domestic interest rates.

Hero Future Energies, backed by the International Financial
Corp., operates 360 MW of wind and solar capacity and has another 1.4 GW
of projects in the pipeline. The company plans to participate in some of the
upcoming auctions.

A decline in costs is one reason developers say prices at
auction will drop.

After falling 30 percent last year, the price of ordinary
multi-crystalline silicon modules is expected to fall another 20 percent in
2017, according to London-based BNEF. Since 2009, solar prices are down 62
percent, with every part of the supply chain trimming costs.

“We expect these modules to sell for around $0.32 per
watt," Jenny Chase, BNEF’s chief solar analyst, said in a research note.

Pent-up demand for nearly two gigawatts of solar capacity up
for auctions in India in the early part of the year will also drive prices
lower, said Rahul Goswami founder of Greenstone Energy Advisors, a
boutique investment bank specializing in renewable energy deals in Asia’s
third-largest economy.

"There is going to be a huge oversubscription in the
coming auctions and everyone in 2017 will be looking at ‘how do I go forward
from my one gigawatt to 1.5 or 2 gigawatts,’" Goswami said in a phone
interview, adding that fewer tenders in the last several months is adding to
the pent-up demand.

Auction Process

Greenstone, which is currently working to find an equity
partner for Canadian renewable energy company SkyPower Ltd.’s 350 MW of
capacity under construction in India, concluded deals for 80 MW of solar
capacity on behalf of Punj Lloyd Ltd. in 2016. The investment bank also advised
billionaire Kumar Mangalam Birla’s Aditya Birla Nuvo Ltd. on a tie-up with
Dubai-based private equity investor The Abraaj Group to add solar power
capacity in 2015.

India is preparing to award 750 MW of solar capacity in the
central Indian state of Madhya Pradesh later this month and nearly 1 GW more by
March, according to state-run Solar Energy Corp. of India, the government
agency that conducts India’s solar auctions.

India adopted auctions in 2010 and is now racing to achieve
Prime Minister Narendra Modi’s solar target of 100 GW of capacity by 2022, a
goal that’s second only to China.

Of the 25 GW to be awarded through auctions, BNEF’s
Chase expects 8.5 GW of that to be in India.

India will soon award 1 GW of capacity through wind auctions
for the first time in a couple of months.